Managerial Finance

MGMT-2020 Fall 2011

Instructor Dr. C. Blent Aybar Classroom Emerson Hall 101 Monday 7:35-9:35 Communication E-mail: aybar@fas.harvard.edu Teaching Associate : Daniel Kim danielkim116@gmail.com Course webpage : http://isites.harvard.edu/k81720 Course Description Objectives The course deals with managing business funds and planning their use to accomplish organizational objectives. It covers the following: techniques of financial analysis and planning such as ratio analysis, pro forma projections and discounted cash flow analysis; domestic and international financial environments; the sources and uses of funds; problems of capital structure; capital budgeting and cost of capital; mergers and approaches to business valuation; international financial management. Prerequisite: Introductory accounting or equivalent.. Methodology I will use lectures, case discussions and overview of topical issues to create a rich learning environment in class. I will emphasize theory and analytics, but also teach the course from an applied perspective. Course Requirements Students are expected to carefully review the assigned reading materials before each session, diligently work on the assigned problems/questions and cases, and to participate actively in the class discussions. You should be prepared to spend significant time to digest the material, to work on the assignments and case studies. Timely submission of the assigned work is critical. Late submissions will not be accepted. Best Preparation Method: You should invariably read the assigned chapters and supplementary materials before you come to the class and go over the assigned exercises and cases. After the end of each session, you should review handouts, your notes and highlights in your readings. I would strongly recommend you to review the end of chapter questions on a regular basis. I will provide the solutions for these questions. Textbook and Resources Principles of Managerial Finance, Gitman & Zutter 13th Edition, Pearson Prentice Hall, 2011 ISBN: 013-255435-6 Financial Calculator (If you do not have one, purchase an inexpensive one) For basic calculator tutorials you can use http://www.tvmcalcs.com/calculator_index HBS Publishing Online Course pack (See the instructions below) Subscription to WSJ strongly recommended

Assignments: 1. Case Analyses (Graded) We will use seven case studies in the class. You are expected to prepare a write up for two out of the following four cases. Ocean Carriers Midland Energy Blains Kitchenware Linear Technologies However, you should be prepared to discuss all seven cases in the class. The case write ups are due on the day we discuss the cases. Case Analysis Guide : Your write up should be analytical rather than descriptive of the contents of the case. Your analysis should be geared towards identification of key questions and problems, evaluation of the situations, and offering alternatives and solutions as well as discussing pros & cons of alternatives suggested. You should choose one alternative as a decision maker, and provide a clear reasoning for your decision. Since most cases used in the class require a composite of careful thinking, conceptualization, quantitative analysis and some form of decision making your analyses will be evaluated based on breadth and depth of your thought process documented in your submitted paper. 2. Problems Sets This assignment was designed to facilitate learning through problems sets addressing key issues covered in the lectures. Exams: There will be two exams. Exam-I (take home) will cover chapters 1 through 8 and will practically address the issues covered in the first half of the class. The Exam-II will cover the second half of the class and will be administered in class. You will be allowed to use a four page cheat sheet in the second exam. Both exams will be a mixture of multiple choice and short problems. Make up exams are available only for officially documented cases. Late submissions of take home exam will not be accepted. Grading: Exam-I Case Write Ups x 2 Problems Sets (x4) Attendance & Participation1 Exam-II Total 25 20 20 10 25 100

Attendance & Participation refers to consistent, constructive and creative engagement in the class with the instructor and your peers. You are expected to make non trivial remarks, bring up interesting issues for discussion and offer clarifying comments to enhance your peers understanding during the class discussions. Quality and substance of your contributions will determine your participation grade.
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95 < 90-95 85-89 75-84 70-74

A AB+ B B-

65-69 60-64 55-59 54>

C+ C CF

Academic Honesty Policy

Students who enrol in courses for credit are expected to attend all classes, take the midterm and final examinations, and complete all other coursework. If a student is absent from a class meeting for any reason, including registering late, it is the student's responsibility to make up all work from that class. All work submitted to meet course requirements is expected to be the student's own work. A student suspected of academic dishonesty in any form is subject to review and disciplinary action by the Summer School Administrative Board. Disciplinary action may include, but is not limited to, required withdrawal from the course and/or required withdrawal from the Extension School. Extension School regulations regarding academic honesty are discussed in detail in the Extension School student handbook. How to purchase the HBS Course pack? Course pack link: http://cb.hbsp.harvard.edu/cb/access/10074359 You can purchase the course pack from the above link. First click on the link and follow the instructions to register on the HBS site. You need to create a user name and password. When you are done log out. After you complete the steps listed above click on the link once more. This time login by using your user name and password. Follow the instructions to purchase the course pack. Your institution/school is Harvard Extension School. The course title is Managerial Finance Fall 2011. Instructor name is Bulent Aybar.

TENTATIVE SCHEDULE August 29th Session-1:

Introduction

Required Readings: Gitman Chps 1 and 2 Topics Covered: Course Logistics Introduction to Managerial Finance Financial Markets September 12th

Session-2: Financial Statements and Ratio Analysis

Topics Covered Key components of the stockholders report: the income statement, balance sheet, statement of retained earnings, and the statement of cash flows. Evaluation of financial statements using ratio analysis. Liquidity, Activity, Debt, Profitability and Market Ratios. DuPont Analysis Required Readings Gitman Chp 3 Stanford GSB Case: Costco Wholesale Corporation Financial Statement Analysis (A) [No case write up required, read the case carefully for class discussion] Drivers of Industry Financial Structure [No write up is required; read the case for class discussion] Assessing A Companys Future Financial Health, Kester et.al

September 19th

Session-3: Cash Flows and Financial Planning

Topics Covered Cash Budget Pro forma income and balance sheet Operating cash flow and Free Cash Flow Depreciation of assets Sources and uses of cash and statement of cash flows Required Readings Gitman Chp 4 HBS Case: Advanced Medical Technologies Corporation [No case write up is required, read the case for class discussion]

September 26th

Session-4: Time Value of Money

Topics Covered The PV and FV of a sum The present and future values of an annuity Intra-year compounding, Mixed cash flow streams

Mixed cash flows with an embedded annuity Perpetuities, Deposits to accumulate a future sum Loan amortization. Required Readings Gitman Chp 5 Assignment Problem Set-1 is Due

October 3rd

Session-5: Bond Valuation

Topics Covered Interest rates, yield curves, and required returns. Major types of bonds Bond Valuation Required Readings: Gitman Chapter 6

October 17th

Session-6: Stock Valuation

Topics Covered Common Stock Valuation Constant and Variable Growth Models Dividend Discount Model and Free Cash Flow Models Required Readings: Gitman Chapter 7 Assignment Problem Set-2 is Due

October 24th

Session-7: Risk and Return

Topics Covered Risk-Return Nexus Risk Measurement Portfolio Diversification Capital Asset Pricing Model Required Readings: Gitman Chapter 8

Exam-I will be handed out on this session. No electronic copies will be made available. Please make sure that you pick up your exam in the

class. The exam is due on October 31st

October 31st

Session-8: Cost of Capital

Topics Covered: Capital Structure WACC Refinements on WACC Required Readings: Gitman Chapter 11 A Practical Guide to Calculation of Cost of Capital HBS Case: Midland Energy Resources (Preliminary Class Discussion) Assignment Problem Set-3 is Due

November 7th

Session-9: Capital Budgeting

Topics Covered: The steps in the capital budgeting process The basics of determining relevant after-tax cash flows of a project Capital Budgeting Techniques Risk and Refinements on Capital Budgeting Required Readings: Gitman Chapters 10,11 Assignments Case Write up Midland Energy Resources is Due

November 14th

Session-10: Capital Budgeting-2

Topics Covered: The steps in the capital budgeting process The basics of determining relevant after-tax cash flows of a project Capital Budgeting Techniques Risk and Refinements on Capital Budgeting Required Readings: Gitman Chapter 12 HBS Case : Ocean Carriers Assignments: HBS Case Write Up Ocean Carriers

November 21st

Session-11: Leverage and Capital Structure

Topics Covered: Operating & Financial Leverage

Optimal Capital Structure Capital Structure in Practice Required Readings: Gitman Chapter 13 How CFOs Make Capital Budgeting and Capital Structure Decisions, JACF Capital Structure Puzzle Revisited, JACF November 28th

Session-13: Leverage and Capital Structure

Topics Covered: Capital Structure Changes and Value Implications Required Readings: HBS Case: Blaine Kitchenware Inc: Capital Structure HBS#4040 Assignments Case Write Up : Blaine Kitchenware Inc: Capital Structure HBS#4040

December 5th

Session-14: Redistribution Decisions

Topics Covered: Dividend Policy and Firm Value Dividends vs. Stock Repurchases Required Readings: Gitman Chapter 13 HBS Case: Dividend Policy at Linear Technologies HBS# 9-204-066 Assignments: Case Write-up Dividend Policy at Linear Technologies

December 12th

Session-15: Working Capital Management

Topics Covered: Current Asset Management Current Liabilities Management Required Readings: Gitman Chapters 15 and 16 Assignments: Problem Set-4 is Due

December 19th

Exam-II (In Class)